A Tesla sedan charges at a station in Berlin, Germany. Sean Gallup, Getty Images

Tesla’s Model 3 Challenges Leave Little ‘Wiggle Room’ on Cash

Tesla has been blowing through more than $1 billion per quarter, and its slower ramp up in manufacturing Model 3s led analysts to speculate another capital raise could be near.

Tesla Inc. pushed back a key production target for its pivotal Model 3 sedan again, raising questions about whether the electric-car maker may need to raise more cash.

The Elon Musk-led company now expects to assemble 5,000 Model 3s a week by the end of June, delaying plans to reach that milestone by another three months. Tesla didn’t come close to achieving an initial goal to manufacture that many of the sedans a week by the end of 2017.

Tesla’s slower ramp up in manufacturing Model 3s led analysts to speculate another capital raise could be coming. The carmaker has been blowing through more than $1 billion a quarter as it’s had trouble scaling up output despite spending heavily on robots, assembly lines and tooling for the sedan that is Musk’s cheapest yet, starting at $35,000.

“Bears will point to this as another missed promise,” Joe Spak, an analyst at RBC Capital Markets, said in a note to clients Wednesday. While a capital raise may not be required, Tesla lacks “a ton of wiggle room” and should seek more cash to mitigate risks, he wrote.

Tesla shares fell 2.6% to $308.90 before the start of regular trading this morning in New York. The stock climbed 46% in 2017 and the company ended the year with a $52.3 billion market capitalization, placing it ahead of Ford Motor Co. and behind General Motors Co.

Tesla reported deliveries of 1,550 Model 3s in the final three months of the year, trailing analysts’ average estimate for about 2,900 units in a Bloomberg News survey.

Including Model S sedans and Model X crossovers, Tesla delivered a total of 29,870 vehicles during the fourth quarter. The company delivered 101,312 Model S and Model X vehicles for the year, exceeding its forecast for 100,000 units. Sales of those more expensive models jumped 33% from 2016.

In the months leading up to efforts to get the Model 3 up to speed, Tesla raised at least $1.2 billion through an offering of stock and convertible bonds in March and another $1.8 billion by tapping the debt market in August.

Tesla’s bonds due in 2025 were quoted at 94.9 cents at 8:30 a.m., according to Trace bond price data, the lowest in about a month.

In a statement Wednesday, Tesla thanked customers “who continue to stick by us while patiently waiting for their cars.” The company announced the acquisition of Perbix, a closely held maker of automated machines used for manufacturing, back in November, a week after Musk cited challenges with automating Model 3 production.

‘Lofty Goals’

“Tesla has really lofty goals for automation,” Tasha Keeney, an analyst at ARK Investment Management, which holds Tesla shares, said in a phone interview. “Once you have it right, you can ramp really quickly, but getting to that phase is the difficult part.”

Tesla ended September with about $3.5 billion cash in hand and projected another $1 billion in capital expenditures during the last three months of the year. By postponing production plans, the company may also defer spending, said Jeff Osborne, an analyst at Cowen & Co. who has the equivalent of a sell rating on the shares.

The company may need to raise another $1 billion to $1.5 billion over the next six months, Osborne said Thursday on Bloomberg Television.

Tesla reported 860 Model 3 sedans were in transit to customers at the end of December. The company said it made significant progress on speeding up manufacturing of the sedan late last month, producing 793 units in the last seven working days.

Chief Financial Officer Deepak Ahuja said during an earnings call in November that cash flow will improve significantly once Tesla ramps up Model 3 output because the company will collect money from customers before paying its suppliers. Cowen’s Osborne wrote in a report to clients Wednesday that the carmaker may need to raise more capital again in the next three to six months.

“Tesla is always a quarter away, and now you have to wait six months to get your report card on your investment thesis,” Osborne said by phone Wednesday. “They’ve kicked the can down the road.”

By Dana Hull

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish